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“After the Boom in Natural Gas” – New York Times, 20 October 2012

Stemming from the desire to no longer depend on foreign oil, the US tapped into its own natural resources; now, the US is experiencing a natural gas boom. Gas companies are using hydraulic fracturing, or fracking, to extract natural gases from shale rock. This fountain of wealth has resulted in cheaper energy for the country; even allowing utility companies, which burn fuel to generate energy, to curtail rates, exchanging coal for natural gases.

The natural gas boom has persuaded many companies – like fertilizer and chemical makers that utilize gas – to build in the US. Once upon a time, these companies would have preferred Asia; but Asia’s gas currently costs four times as much as the US’s. At first, this boost in resources was seen as a gift that would lead to more jobs and revenue for the US; however, gas exploration companies, and their investors, are currently experiencing huge losses.

The flood in natural gas has led to a crash in pricing. Companies haven’t been able to avoid losing profits, as they have continually poured money into financial deals and leases during the boom. The bankers and companies who made a handsome sum pulled out at the right time, the market’s climax, but many lost millions, and numerous drillers have shifted from gas exploration to oil. Oil prices have held up much better compared to natural gas.

From 2006-2012, the top 50 oil and gas companies doubled their yearly budget, spending an annual average of $126 billion on drilling and land leases. In these leases, companies are committed to paying formidable sums to landowners; and many have a “use it or lose it” clause, which states that companies must start drilling within three years and pay royalties to landowners or forfeit leases. Many companies are paying thousands of dollars to landowners, but are not making any profits and cannot afford to lose their contracts. Such clauses are a driving force for drillers to continue drilling.

Although natural gas comes from a non-renewable source, shale assets will be able to produce for hundreds of years. But what will the future bring?

1. Will the price of natural gas ever make a recovery if the resource is indeed very abundant?

2. Will the abundance and low-cost of natural gas lead to production of cheaper and cleaner energy sources in US, attracting new manufacturing of industrial materials, chemicals, minerals and metals? Will the US be able to expand its export of cheaper goods manufactured, with lower carbon foot prints, by using natural gas and more energy efficient technologies?

3. Will the US begin exporting liquified natural gas to energy-hungry counties such as India and China?

We will continue to discuss these topics in upcoming blogs. Stay tuned.